BLACKROCK Inc. and UBS Group AG have turned positive on China’s beaten-down equities, citing investors’ growing comfort with China’s regulatory actions and an improving earnings outlook.

The upgrade to overweight by the world’s biggest asset manager and UBS, which had a bearish view for 16 months, adds to the belief that the worst for the underperforming market may be over.

It comes at a time when a gauge for global equities is less than 1 percent away from setting a new record high. Fidelity International Ltd. is also preparing to seize some “deep value opportunities.”

“We are dipping our toes back in, and we think there is more room for tactical upside,” said Ben Powell, chief investment strategist for Asia Pacific at BlackRock Investment Institute. “The market has got a much higher degree of comfort” about the level of regulatory scrutiny that is here to stay, he added.

UBS strategists, including Niall Macleod, upgraded their recommendation on Chinese equities, saying tighter regulations have been priced in, while corporate earnings and valuations are set to improve.

The change in their stance underscores how investor skepticism over China has been receding despite negative factors such as contagion risk from China Evergrande Group’s debt crisis and slowing economic growth.

BlackRock is the first foreign asset manager allowed to start a wholly-owned mutual fund business in China and UBS is already one of the top foreign asset managers in the Asian nation.

“The market of course has got a much better understanding of where the level” of regulatory pressure is and earnings are set to improve, BlackRock’s Powell said. (SD-Agencies)